UNEMPLOYMENT BENEFITS, CONTRACT LENGTH AND NOMINAL WAGE FLEXIBILITY

Lars Calmfors () and Åsa Johansson ()
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Lars Calmfors: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Åsa Johansson: OECD

No 692, Seminar Papers from Stockholm University, Institute for International Economic Studies

Abstract: We show in a union-bargaining model that a decrease in the unemployment benefit level increases not only equilibrium employment, but also nominal wage flexibility, and thus reduces employment variations in the case of nominal shocks. Long-term wage contracts lead to higher expected real wages and hence higher expected unemployment than short-term contracts. Therefore lower benefits reduce the expected utility gross of contract costs of a union member more with long-term than with short-term contracts and thus create an incentive for shorter contracts. Incentives for employers work in the same direction. Lower taxes associated with lower benefits also tend to make short-term contracts more attractive.

Keywords: nominal wage flexibility; contract length; macroeconomic fluctuations; unemployment benefits. (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 J65 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2001-05-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iiessp:0692

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